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Agriculture in the 21st Century
As you study the ideas presented on this page, consider how these thoughts contribute to step 3 of the strategic planning process: "business environment."
Agriculture is a dynamic industry -- it is changing; for example, see U.S. Ethanol Expansion Driving Changes Throughout the Agricultural Sector.
This page is an opportunity to consider 1) trends in agriculture, 2) causes of these trends in agriculture, 3) implications of these trends, and 4) opportunities arising from these trends. Economic concepts that will be reviewed as part of this discussion includes 1) determinants of supply, determinants of demand, and the characteristics of perfect competition.
Some Thoughts about the Future
Food and Agricultural Policy -- Taking Stock for the New Century by USDA, September 2001.
- Executive
Summary -- required reading (pages 7-20 of the pdf file)
- Pay special attention to the following topics: consumer-driven agriculture, a global economy, technological innovation, agricultural diversity, implications of change, trade expansion, conservation and environment, rural communities.
- Full report -- suggested reading
- Major
topics in this report are
- The Evolving Food and Agriculture System
- Trade Expansion Is Critical
- Farm Sector Policy
- Enhancing the Infrastructure
- Conservation and the Environment
- Rural Communities
- Nutrition and Food Assistance
The U.S. Food Marketing System, 2002 ERS Agricultural Economic Report No. AER811. August 2002
- Abstract -- This report focuses on recent trends in the food supply chain. Chapters on food manufacturing, wholesaling, grocery retailing, and food service provide a detailed overview of structure, performance, information systems, new technology, and foreign direct investments. The report also contains a comprehensive set of appendix tables containing sales, concentration, trade, productivity, and other indicators. At the time of publication, most of the data sets used in this report included data through the year 2000.
- Introduction
-- required reading
- Selected
excerpts:
- Efficiency gains in the food marketing system continue to result in abundant supplies of a variety of affordable food products.
- [M]erger and acquisition activity continues to result in increased concentration.
- Buyer-seller relationships are changing throughout the food supply chain as stages become increasingly interdependent.
- The food marketing system continues to embrace new technology that improves the flow of information.
- Competitive pressures are mounting for farmers to deliver the right types of products at the right time. Retailers are demanding a variety of high-quality products (for example, organic produce or exceptionally lean pork) delivered in a timely fashion. This increases the importance of agricultural product differentiation and precise information.
- International trends in trade and foreign direct investment offer U.S. food marketers an alternative to the slowly growing domestic food market. It also leaves the U.S. food marketing system increasingly exposed to foreign economic developments, policies, and changing consumer preferences.
- Selected
excerpts:
- Major topics
in this report are
- Food manufacturing
- Food wholesaling
- Food retailing
- Food service
- These topics do not encompass the farm input sectors
Vertical Coordination by Food Firms Rising, Along with Contract Production USDA's Economic Research Service; AIB-720, June 1996, summary of report
Again, visit Microsoft's Customer Model. Read the first part of the Introduction; i.e., p. 4 to the top part of p. 5 of the pdf file.
These publications are now several years old. What is the impact of recent events, such as declining value of the dollar and expanded use of renewable energy based on agricultural commodities? What is the impact of increasing wealth for many people, such as in China? What is allowing these people to substantially increase their income at this time?
Do we need to think about rural issues?
- Enhanced
quality of life for rural Americans Economic Research Service USDA
(ERS): links to numerous other publications and articles addressing
rural America.
- This web site is valuable only if you are willing to read -- take the time to read and think. This self-discipline is a necessity for all professionals in the information age.
Do we need to think about consumers and others?
Agriculture ranges from small firms, to large firms, to huge multi-national businesses. It encompasses government agencies at the local, state and federal level. It includes organizations interested in the well-being of the industry (such as producer groups) to organizations interested in the health and nutrition of people.
As you take this course, you may have some thoughts as to where in the complex industry you will spend all or part of your career; others in the class may not have any idea but are excited about the range of opportunities. Regardless of where your opportunities may lead, you need to understand the challenge of providing food for the world's population today and in the future. Increasingly as individuals, we will not feed ourselves; that is, "I will not raise the food I eat." Instead, all of us will rely on a vast array of interactions and transactions involving numerous entities and vast distances to provide our food. The challenge is how do we make individual, as well as collective decisions to accomplish the common goal of assuring that people are fed.
Texts:
- Review
Farm Management for the 21st Century; Kay Chapter 1. Key points from this chapter include
- Production agriculture is influenced by production technology and the owners' goals.
- Production agriculture is evolving to have high volume commodity producers and low volume product producers; is this observation still true today?
- Specialization offers opportunity; but how does this reconcile with the strategy of managing risk by diversifying?
- Managing information within the firm, sharing information with collaborating businesses, analyzing information about global opportunities;
- Working with others; how does this reconcile with the pride of being independent?
- Influence (impact) of consumer demand for food products.
- Society's expectations of business operations.
- Advancing production and information technology.
- Small Business
Management; Daft Chapter 6 (pp. 192-197, 199-203). Key points from this chapter include
- Entrepreneurship -- initiating the business, organizing the resources, taking the risks.
- Consumers want service; industries, economies, and businesses are becoming global; competition is increasing; technology is advancing.
- Personality
traits of small business owners/managers -- internal locus of control,
high energy level, need to achieve, self-confidence, awareness of
passing time, tolerance for ambiguity.
- What about willingness and ability to assume risk?
- Agribusiness management for the 21st century
- Food industry in the 21st century
- Managing in a Global
Environment; Daft Chapter 4 (pp. 119-137). Key points include
- Impact of advances in technology and communication (also transportation).
- No one is isolated.
- Increased complexity
and competition.
- What about increased opportunity?
Causes of Trends in Agriculture
- Production, communication and transportation technologies are changing/advancing.
Implications of the Trends in Agriculture
What impact are these changing technologies having on competition? Why? Can you explain this using terms and concepts you learned in ECON 201 and 202? HINT: review the determinants of demand and supply and level of competition.
More is being produced (result of production technology?), we (the world?) are aware of this (result of information technology?), and it can be moved to where consumers want to use it (result of transportation technology)?
Producers feel increased competition due to increased production (production technology) and competing products able to be moved into the producer's market (information and transportation technologies).
Consumers feel increased competition because other consumers can enter their market (information and transportation technologies) to compete for the products available in the consumers market.
Accordingly, some producers welcome increased number of consumers because it increases demand for the products they produce.
Bottom line -- these technologies combine to increase production and availability of the products. The general result is an "increase in the standard of living".
New technology appears to be a cost (research, development, manufacture, etc), but the initial cost will hopefully be recovered over years of use. Uncertainty (risk?) is a major consideration in continuing to advance technology. Who takes this risk? Society through government research? Individual "inventors"? Private businesses with capacity (ability) and willingness to assume risk?
How does the ownership of research results (new ideas) impact a risk-takers willingness to assume the uncertainty associated with trying to create new ideas/technology?
Biotechnology is not being accepted by some producers and consumers? Why? Again, can you explain this using terms and concepts you learned in ECON 201 and 202?
Productivity Growth in U.S. Agriculture. ERS, USDA, September 2007.
- Consumers influence
the food industry; USDA describes the agriculture industry as "consumer-driven."
What does it mean that the industry is consumer-driven? Why is the
industry consumer-driven (think in terms of both the U.S. domestic market
and the global market)? What are the implications that the industry
is consumer-driven?
- A Revolution in Food Retailing Underway in the Asia-Pacific Region. Coyle, W. T., USDA ERS June 2006. -- required reading
- Earning a profit
is a common business goal; also, a simple definition of management is
making decisions. Are there other goals that managers may consider when
making decisions?
- We discussed the role of goals in decision making in another section.
- Production agriculture relies on natural resources of soil, water and air; production agriculture also impacts these resources. Production agriculture prides itself on being a steward of natural resources; but society also is imposing environmental rules or limits on production agriculture. Can we diagram and explain the impact of an environmental regulation? Consider the economic concepts of marginal cost (MC), marginal revenue (MR), profit maximization, supply, demand, and then a shift in MC, supply, and increased cost to today's consumer. (Review these economic concepts within the context of diminishing marginal productivity.)
- What is the purpose of an environmental regulation and who benefits from such a regulation?
- Impact of an environmental regulation is between today's consumer and tomorrow's consumers but we will subsequently consider why this general statement maybe inaccurate.
Detriments of Demand and Supply
See reference page: https://www.ndsu.edu/pubweb/~saxowsky/frm&agbusmgt/ref_topics/DeterminantsDS.htm
Opportunities due to the Trends in Agriculture
- USDA indicates
that expanding exports is important to U.S. agriculture. Why?
- What is the implication if the increase in the US food supply is outpacing the increase in US food consumption? Why is the US food supply increasing so rapidly? Why is the increase in US demand for food increasing more slowly? It is appropriate to describe the US food market as a mature market? Can we diagram this with supply and demand?
- We have mentioned
two determinants of supply -- technology and government regulation. What
are the other determinants
of supply and how do they apply to today's agriculture?
- Can we diagram the impact of production technology? HINT -- TPP, TVC, MC, supply? (Review these economic concepts within the context of diminishing marginal productivity.)
- We have mentioned several determinants of demand -- consumer income, consumer preferences, and number of consumers. What are the other determinants of demand and how do they apply to today's agriculture?
- What is the impact of the U.S. expanding its import of agricultural products?
- A declining portion of US income is being spent on food; is this due to increasing income or decreasing food cost?
- Consumer are becoming more specific or particular in their demand for food; an increased portion of our food is consumed away from home. What is driving these trends? Can you explain this in terms of "normal goods" and "inferior goods" as defined in economic theory?
- Do these trends or the reasons for these trends create an opportunity for agriculture producers? Does they create an opportunity for agribusinesses? Explain.
- Agriculture is more than production agriculture
- The firms that
manufacture, transport, market and prepare food; the firms that
provide production inputs (including capital); the concerns about
natural resources; etc.
- See NGFA's Farm-to-Table.
Characteristics of Competition
Agribusiness firms -- are they good or bad? Why? How does this relate to perfect and imperfect competition?
- What are the characteristics of perfect competition? What is the implication of perfect competition?
- How would you describe imperfect competition? What is the implication
(opportunity) for imperfect competition?
- Will the agriculture/food industry become a market of monopolistic competition?
- What causes an industry to become a market of monopolistic competition? See http://www.unc.edu/depts/econ/byrns_web/Economicae/monocompt.html
- Production
agriculture is often cited as an example of perfect competition.
- Are there strategies to shift from perfect competition?
- How do these strategies relate to "consumers are becoming more specific or demanding?"
- How do these strategies relate to production technology and market information?
- What prevents producers from shifting to perfect competition?
- How might producers overcome this barrier?
- "... various sectors of the food economy -- from producers to processors to retailers -- are more interconnected than ever before, and grow more so every day ... These contextual changes mean the United States must think differently about the agricultural and food system infrastructure." excerpt from "Food and Agricultural Policy -- Taking Stock for the New Century," page 65 of pdf file
- "Concentration and vertical integration in other agricultural sectors raises questions about the utility and validity of traditional spot-market price data, and may make it increasingly difficult to collect adequate information on such variables as production costs and farm income. There is a growing need to collect data and conduct research and analysis that will help market participants adjust to market changes and to contribute to more informed public policy deliberations relating to structural change. This will require knowing more about supply chain linkages. However, less public information is available about increasingly private market transactions." excerpt from "Food and Agricultural Policy -- Taking Stock for the New Century," page 75 of pdf file
- "Farmers once purchased inputs and sold products in arms-length transactions and largely were price takers in both markets. But, those lines are fast blurring, with differentiated products, bundled systems, and greater system coordination. Buyers and sellers of agricultural commodities and producers rely less on cash markets and more on dozens of kinds of contractual arrangements." excerpt from "Food and Agricultural Policy -- Taking Stock for the New Century," page 25 of pdf file
Kay et. al. mention that production agriculture will be more reliant on employees in the future. Why? What opportunities does this offer? What challenges does this offer?
The following links are examples of sources of government information about agriculture. What do these sources suggest about the future of agriculture?
- Economic Research Service, United States Department of Agriculture (ERS) "is the main source of economic information and research from the U.S. Department of Agriculture." It offers a significant body of research and analysis on a variety of Key Topics. Selected resources include
- National Agricultural Statistical Service, United States Department of Agriculture (NASS) provides "timely, accurate, and useful statistics in service to U. S. agriculture."
- North Dakota Agricultural Statistics Service, USDA (NDASS) provides "everyone with equal access to accurate, unbiased information" including prices and yields for North Dakota and yields for each county.
-
In summary, what
are some general descriptors for agriculture in the 21st century?
- How do these descriptors relate to the list of economic resources (land, labor, capital and entrepreneurial ability)? Can we discuss agriculture for the 21st century in terms of land, labor, capital, information and risk?
- Information Technology;
Daft Chapter 20 (pp. 742-743, 745-748). Key points include
- Data v. information.
- Timely, accurate, easy to use; does your information system provide this?
- Information overload; what information do you need? what information do you use?
- Computer as a tool for handling data.
- Converting
data into information -- organizing and analyzing the data; storing
the data so it can be retrieved
- What questions will likely need to be answered with the information; do these anticipated questions provide guidance as to how the data needs to be converted to information; will the information merely report results (e.g., something changed) or will it also confirm causes (i.e., the reason something changed)?
- Who do you share the information with? Why do you share the information with these persons?
- Why invest
in information? What should we expect to receive for this
investment?
- Fulfill government requirements (taxes, environmental rules, source of input)
- Useful in
making decisions
- effectiveness (accomplish our goals),
- efficiency (accomplish our goals at lowest possible cost),
- Enhance
our understanding
- Collaboration (more people thinking)
- Continued learning (self-growth and understanding)
- Fulfill contractual requirements; obligations we accepted when we agreed to do business with another firm
- What record keeping system and what analytical tools will work for your business?
- Also see Farms, the Internet, & E-Commerce: Adoption & Implications. Agricultural Outlook, Economic Research Service, USDA, November 2001.
Bottom line: will we use a collaborative approach to feed the world? The next section discusses this general business strategy.
Summary of Key Points
This section discussed changes occurring in the agriculture/food industry. The discussion also addressed how advancing technologies in the areas of production, communication and transportation are causing many of these changes. The impact of the industrial revolution and the urbanization of many people around the world also was considered.
- Advancing technologies increase competition by allowing producers to increase output, and allowing suppliers and consumers to identify and interact with a larger number of people and businesses.
- Recall that expanded trade impacts not only the new sellers and new buyers, but also impacts current buyers who now have to compete with new buyers and current sellers who now have to compete with new sellers.
- Who ultimately benefits from advancing technologies?
- Expanded number of non-farm careers has increased the number of consumers who purchase their food and has increased their income.
The discussion reviewed several economic concepts, including determinants of demand, determinants of supply, characteristics of perfect competition, and implications of perfect and imperfect competition. In addition, the discussion addressed the idea of "intentionally breaking out of perfect competition" and the business practice of supply chain management.
- Increased consumer income has expanded and altered the consumers' demand for food.
- Changing consumer demand/expectations is reflected in the market as well as in government regulations.
- For example, an environmental regulation is a decision about consuming today versus consuming in the future, assuming all producers must comply with the same regulation.
- Changing consumer demand/expectations is reflected in the market as well as in government regulations.
- Advancing production technology has expanded global food production; advancing communication and transportation technologies have increased competition for suppliers and consumers of food.
- Firms facing perfect competition have minimal opportunity to earn an economic profit.
- Firms can pursue strategies that reduce competition, these strategies include controlling access to information about production technology and market opportunities.
- Firms can enter into business arrangements that include immediately sharing information to reduce cost, but these arrangements alter the business' risk exposure.
Last Updated August 19, 2010
Email: David.Saxowsky@ndsu.edu
This material is intended for educational purposes only. It is not a substitute for competent professional advice. Seek appropriate advice for answers to your specific questions.
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